Congress Stands Up for Ronald (McDonald)

New bill would reverse Obama Era crackdown on franchises

The House of Representatives passed a bill that could roll back Obama labor board's crackdown on franchise businesses.

On Tuesday, the House voted 242-181 to pass the Save Local Business Act, which would prevent parent corporations from being held liable for labor violations committed by franchisees or subcontractors. The bipartisan vote came despite a September overture from Democratic leadership to wrangle members against the bill. If passed by the Senate it will set a strict standard for determining joint employment by requiring regulators or plaintiffs' lawyers to prove that a parent company "directly, actually, and immediately, and not in a limited and routine manner, exercises significant control" over labor practices.

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The act represents the latest congressional effort to reverse regulatory policies adopted by the Obama administration. In 2016, the National Labor Relations Board (NLRB), the top federal labor arbiter that oversees workplace disputes and union elections, overturned decades of precedent to hold a contractor responsible for violations despite the fact that it had little input over its subcontractors' labor practices.

Rep. Virginia Foxx (R., N.C.), chairwoman of the House Committee on Education and Workforce, said the standard set by the NLRB created a murky working environment that threatened the nation's 733,000 franchise businesses. She said the act "represents a significant step in a broader effort to restore fairness, balance, and clarity to the federal policies governing America's workplaces" by drawing a bright line between umbrella companies and their local partners. Critics said the threat of holding parent companies liable for the actions of franchisees could drive up costs and lead them to withhold partnerships with smaller businesses and young entrepreneurs who do not have the resources for insurance and lengthy legal costs.

"The basic question over what it means to be an employer can't be left up to unelected bureaucrats and trial lawyers to determine," Foxx told the Washington Free Beacon. "Congress has a responsibility to clarify misguided policies that are creating uncertainty for local businesses and their employees."

Bill sponsor Rep. Bradley Byrne (R., Ala.) said it will aid small business owners, who typically begin franchise enterprises, such as fast food companies. He said the new standard represented a hand out to labor groups, which have long targeted franchises for unionization. The traditional joint employment standard was a major obstacle to this effort because it requires unions to go store-by-store to organize workers; the Obama Era rule could open the door for top-down unionization, according to Byrne.

"The unworkable joint-employer standard results in confusion and uncertainty that only benefits trial lawyers and Big Labor while making things harder for job creators and small businesses," he said. "Through today's bipartisan vote, we are one step closer to clearing up the uncertainty and protecting important American jobs."

Industry groups praised the bill. Robert Cresanti, president and CEO of the International Franchise Association, called it a "milestone" for the industry.

"The NLRB-created joint employer definition is far too broad and poses an existential threat to the franchise and small business community," Cresanti said in a statement. "The Save Local Business Act is the most important legislation for franchising in a generation, a commonsense bill with bipartisan support that protects business relationships and promotes economic growth."

Some groups have urged the Senate to move quickly on the bill. Trey Kovacs, a labor expert at the pro-free market Competitive Enterprise Institute, said it is needed to "relieve job creators from near-unlimited liability."

"Without reform to joint employer liability, businesses face confusing and uncertain labor costs. This puts jobs and businesses at risk, leading to decreased opportunities for entrepreneurs and less job creation," Kovacs said in a statement.

Bill McMorris is a staff writer for the Washington Free Beacon. He joins the Beacon from the Franklin Center for Government and Public Integrity, where he was managing editor of Old Dominion Watchdog. He was a 2010 Robert Novak Fellow with the Phillips Foundation, where he studied state pension shortfalls. His work has been featured on CNN, Fox News, The Economist, Colbert Report, and numerous print publications and radio stations. He lives in Alexandria, Va, with his wife and three daughters. His Twitter handle is @FBillMcMorris. His email address is mcmorris@freebeacon.com.